MS ORCL Credit Up the Spending Scale, Down the Rating Scale

TMT Credit Research | North America Morgan Stanley & Co. LLC Update

Lindsay A Tyler Credit Analyst

Scale, Down the Rating Scale Key Takeaways Related recent credit & cross-asset research: S&P downgraded its credit rating on ORCL today to BBB- (stable outlook) from - ORCL Credit: $260bn Off Balance Sheet, But BBB (on negative outlook since July 2025). On Our Mind (22 Jun 2026); - ORCL Credit: Funding Relief, Not Resolution – S&P loosened the BBB d/g threshold to 4x in the fall; d/g risk wasn't clear-cut FY4Q Quick Takes (11 Jun 2026); given our net adj. lev. forecasts exceeded that only temporarily in FY27-28E. - ORCL Credit: A Bond for 'The Barn' (24 Apr This move likely surprised investors, considering prior pushback on our low-BBB 2026) (see Exhibit 1 for pre-earnings adj. risk view (albeit more so at Moody's), as reflected in today's reaction wider. leverage forecasts vs. ratings agency mid-BBB Focus should shift to Moody’s Baa2 negative outlook, given our forecast for gross thresholds); adj. lev. to be sustained above the threshold even with customer prepayments. - Oracle Corporation: Computing the Upside – In our view, fallen-angel risk is not immediate, especially with equity and And the Cost (23 Apr 2026). prepayment levers, but remains medium-term dependent on execution and monetization.

Beyond cash flow, counterparty and leverage concerns, S&P flagged growing compute-as-a-service competition as a risk to re-leasing terms – a thematic takeaway.

We reiterate LT 10Y/30Y spread targets of +200/+250bp, though prior CY26 wide-end +175/225bp targets may not appropriately reflect peer issuance indigestion.

Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.

ORCL Credit Trade ORCL Credit Trade Valuation Methodology and Risks

Trade Entry Level Entry Date Current Level Rationale Risks Buy ORCLCP 5Y CDS +57bp 9/28/25 +185bp • Credit profile deterioration, • Constructive updates on driven by cash funding needs RPO/growth and financing and increasing lease clarity liabilities related to new data • TL As may not ultimately centers serve a significant funding • Lender hedging may be a role key driver of CDS too • CDS technicals: Basis • CDS could approach 200bp selling, construction loan when looking at other large hedge unwinds, fast money structure situations where outright shorts profit taking there have been ratings risk Sell ORCL 5.2 9/26/35 +167bp 1/23/26 +181bp • Credit profile deterioration, • Additional visibility on long- Sell ORCL 5.95 9/26/55 +208bp +244bp driven by cash funding needs term monetization and and increasing lease delevering beyond FY28-end liabilities related to new data • Issuance cadence may be centers different than our • View ~175bp and ~225bp assumptions as possible CY26 book-ends considering large media/ cable structure comps, but wider than that may be fair considering recent IG new issue indigestion • Pose ~200/~250 as longer- term targets, depending on index level (with 36s/56s FV ~10bp wider)